There are numerous business models you could be implementing in your digital business to create, sustain and successful disrupt your or another industry. Here are just a few.
Powered by nothing more than the internet and smartphones, digital disruptors are everywhere. From WhatsApp, which has displaced telecom companies, Netflix, which has changed home entertainment and Airbnb is disrupting the travel industry. These are just three examples of companies who seemingly came out of nowhere and are now the front runners in each of their industries.
“We're seeing a new wave of start-ups, such as Uber, Airbnb, and Netflix, that are targeting relatively defenceless non-digital industries," says Dave Hrycyszyn, director of technology at Head, a digital agency that has helped the likes of Tesco, Bupa, Pearson and the NHS to transform their digital offerings.
Here are 10 business models of digital disruptors that you can look out for or incorporate into your business:
Business Model 1: Subscription model
The digital subscription has all the benefits of the physical subscription, while addressing most of the disadvantages. Because the subscription is online, it is tied to a service, and there is no exchange of physical products. When there is products involved, such as with Netflix subscriptions, the entire account is managed online, which allows the business to manage it entirely as a service.
As an example, according to Eric Noren an analyst and business model strategist, a digital business that offers subscription business models will require their customers to initiate the payment with a credit card. This is an acceptable business practise to consumers, and all subscriptions can automatically renew per the end users agreement.
There is more control in the digital subscription business model compared to its physical world twin. When a consumer wants to terminate the subscription it’s handled in rea-time, this allows the service to be immediately suspended.
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Examples of these types of companies can be anything from Netflix and ShowMax to Apple Music. Any digital business where you’re essential paying for content on a digital platform on a monthly basis.
How has subscription disrupted industries?
This model is disrupting industries by ‘locking-in’, this is essentially taking a product or a service that consumers were traditionally purchasing on an ad hoc basis, and locking in repeat customer by charging a subscription fee for continued access to the product/service.
What makes subscription so successful?
“In April 2017, subscription company websites had about 37 million visitors. Since 2014, that number has grown by over 800%,” according to Forbes. There are a few critical aspects that make a digital subscription business successful, this ultimately centres on costs and price.
“To remain profitable, it's critical that the company's costs remain low relative to price. Once subscription revenue exceeds costs, the company is generally free to grow unfettered,” explains Noren. Considering how little physical infrastructure many of these businesses have, they can ensure their overheads remain low.
Besides price, customer satisfaction is also critical. For subscribers price is central to the customer, and each customer must think they’re getting greater value than the recurring payment they make. Once a digital subscription business’ income has broken even, every new customer is profit. If, like Netflix, you have users around the world, it creates high profit, which lends itself to high growth. This makes these types of businesses dangerous to traditional companies in the same industry.
Business Model 2: Frugal model
The frugal business model originated in lower-income economies, where there was typically a lack of resources, which resulted in the community using ingenuity to solve challenges. This could be compared to the lean method, where a business minimises waste without sacrificing productivity.
Renault launched the Logan car, which uses feudal designs, assembly and maintenance principles. This car, launched in 2004, retails for USD6000 and has become a leading seller. An even more frugal version was developed after that. Launching in India in 2016, the Kwid, retails at USD4700.
How has the free frugal disrupted industries?
“Frugal models, truly have the power to disrupt by reducing bloated research and development processes and building new market segments. The model can drive competitiveness and, in the search for cost savings, environmental performance is often improved,” according to an ACCA report.
What makes the frugal model so successful?
The frugal model can offer resilient solutions that drive originality and innovation, while costing a fraction of the infrastructure or resources. This can put them ahead of larger business relying on tried-and-tested methods and materials, which also charge significantly more. The frugal business model could essential undercut all the established organisations in an industry.
Business Model 3: Freemium
This is a business that offers free, basic services that can then be upgraded for premium features at any time.
Examples of digital businesses using the freemium business model include Spotify, LinkedIn and Dropbox. Other examples could be:
- Zapier – this helps to automate tasks within particular service or between different services.
- Filament Flare – is a social sharing tool that is targeted at blog owners.
- MailChimp – This is an email marketing software platform that allows users to collect email list subscribers, send regular email updates, create autoresponder series, and automate your marketing.
- FreshBooks – is an invoicing software for freelancers and small businesses.
How has freemium disrupted industries?
This digital business disrupts through digital sampling. This is where consumers pay for a basic service or product with their data or ‘eyeballs,’ rather than money, and then the company can charge them to upgrade to the full offer.
What makes freemium so successful?
The freemium business model works the best when marginal costs for extra units and distribution are lower than advertising revue or the sale of personal data. The growth of LinkedIn, for example was due largely to the amount of times a user has to import their contacts. When signing up this happens multiple time, allowing LinkedIn to gain new users from current ones.
The success in this business model lies in the amount of customers you can get hooked on your product. “Everyone likes free, and if users know they don't have to commit to a paid plan, they are more likely to sign up to give it a try,” explains Sujan Patel, growth marketer and entrepreneur.
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Business Model 4: Mass customisation 2.0 model
Increasingly sophisticated personalisation and assembly can now happen conveniently. “Once, transnational supply chains were required to bring a product together and deliver it to the customer’s doorstep. Today, ‘on-demand’ is replacing ‘in-stock’ as digital designs, hosted in the cloud, can be sent to the customer on request,” according to ACCA.
Opendesk, is a global network of furniture makers and designers. You can purchase their designs in digital form and have them made locally, on demand. A chair designed in Sao Paulo can be bought by a customer in downtown Shanghai, and manufactured and assembled at a local co-working space.
How has the mass customisation 2.0 model disrupted industries?
The mass customisation 2.0 business model could potentially upend the traditional manufacturing industry, as its building new skills bases within new centres of economic dynamism, while nurturing a digital-to-real-world connection.
“It’s more than a manufacturing renaissance in the sense of reviving what has come before. It has been called a movement that ‘is proving that anyone can be a maker and that genuine progress on the nation’s most pressing problems can be made from the bottom up,” says ACCA.
What makes the mass customisation 2.0 model so successful?
This business model can harness digital opportunities, while lowering hardware costs, dematerialising supply chains and putting fabrication back into the hands of the local industry. The mass customisation 2.0 business model has create an ‘on-demand’ movement instead of ‘in stock’. Now, everyone can have high-quality products from previously inaccessible designers across the world.
Business Model 5: Free model
A free model is when the actual product/service is free, but the business makes money from advertisers and selling unique end-consumer data to marketing business. Because the product/service is free this results in a large than normal customer base, which can increase the value of your business because investors recognise that your whole consumer following could be monetised.
Examples of the free digital disruptor model are companies such as Facebook and Google. Facebook will sell data and advertising slots. This covers its costs and allows it to be completely free social platform to consumers. Since this is the number 1 social media platform in the word, marketers want to maximise their brands’ exposure on the platform.
How has the free model disrupted industries?
This digital disruptor business model disrupts with the concept of if you aren’t paying for the product, you are the product model. The free model involves selling personal data or ‘advertising eyeballs’ harvested by offering consumers a ‘free’ product or service that captures their data/attention.
What makes the free model so successful?
The trick to doing the free business model right is to ensure that the product/service is of a high value to your customers, “which should result in both high customer satisfaction and a likelihood that they will tell others about your product/service, leading to viral effects,” explains David Skok, serial entrepreneur.
He continues to say that the smart crowd who get this right, understand that in a typical business the biggest expense is sales and marketing. They recognised that offering a free product/service is a clever way to acquire new customers at a low costs, which you can then monetise in a different way.
Business Model 6: ‘Pay-what-you-want’ model
As the name suggest, under this business model customers pay what they think a product or service is worth, or what they want to pay. This model, can sometimes reflect some elements of Freemium, where for more features, customer can purchase a premium version for a specified fee.
An example of the pay-what-you-want model is Humble Bundle. This company offers customers downloadable video games, grouped in bundles. Customers can then suggest payment options, such as paying more for a larger bundle, and can allocate the amount they pay to the game developers, Humble Bundle as the go-between and a chosen charity.
How has the pay-what-you-want model disrupted industries?
According to ACCA: “Pay-what-you-want can work as part of a dual-pricing strategy, where a service is paid for in full by most customers allowing for a selection of customers to be offered a subsidised rate. ‘Pay what you want’ can work to encourage discovery. This works well for cultural production.”
What makes the pay-what-you-want model so successful?
This digital business model isn’t just a pricing strategy, it can offer you the opportunity to open up access to new customers and allows for experimentation and market testing.
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Business Model 7: Platform-based model
This is effectively where the business earns income from hosting a platform that has become a marketplace where buyers and sellers can meet and perform transactions. The business allows both sellers and buyers to use the marketplace for a small commission. The more people who use the platform, the faster the business grows.
Uber provides the world with a platform, which hosts a digital marketplace for drivers, in return for a small placement fee or commission. Users can now leverage their own assets, to offer a service and earn an extra income.
Other examples are:
- Etsy, craft makers post their wears and consumers purchase from them.
- Amazon creates a marketplace for retailers, where customers can go and find the best price for what they’re looking for.
- iTunes offers a platform for customers to buy music from artists.
How has the platform-based disrupted industries?
Marketplace business model companies have disrupted the traditional way of achieving the same result. For example, Uber has disrupted the transportation industry worldwide. iTunes is replacing physical music stores and Amazon is quickly becoming the place to advertise your products as it reaches a larger audience.
What makes the platform-based model so successful?
The digital marketplace business model causes disruptions by hosting a platform that brings buyers and sellers together, in return for a transaction fee or commission. This means the business doesn’t need to invest in assets, while still benefiting from the “renting” of the assets. Overheads are low and the potential for exponential growth is high.
Business Model 8: Mega-hyperlocal model
These are companies that rely and thrive on local inputs, production and customers. Organisations with the mega-hyperlocal business model, tend not to scale beyond a specific geographical area, and have the opportunity to build loyalty, trust and a sustainable business.
Kernel Brewery is a microbrewery based in central London, which is a good example of a business with a mega-hyperlocal model. The product is sourced and made locally, creating a strong brand with a low environmental footprint. This business also values reputation within the community over growth.
Using digital technology the business can reach far more local customer than ever before.
How has the free mega-hyperlocal disrupted industries?
Ventures with mega-hyperlocal business models can also make a meaningful contribution to local economic development and can strengthen a range of local businesses that support each other as an ecosystem, claims ACCA. “From dense urban neighbourhoods to rural communities with limited-sized markets, they can provide high-quality employment that promotes entrepreneurialism and community dynamism in areas where that might not have previously been possible.”
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What makes the mega-hyperlocal model so successful?
“From dense urban neighbourhoods to rural communities with limited-sized markets,” says the ACCA’s report, mega-hyperlocal businesses “can provide high-quality employment that promotes entrepreneurialism and community dynamism in areas where that might not have previously been possible.”
Business Model 9: Access-Over-Ownership model
The access-over-ownership model allows consumers to access assets they would have had to purchase before, and now they can use for a designated amount of time. “When consumers use the world’s leading car sharing service they don’t feel any of the reciprocal obligations when sharing with one another. They experience Zipcar in the anonymous way one experiences a hotel; they know others have used the cars, but have no desire to interact with them. They don’t view other Zipsters as co-sharers of the cars, but rather are mistrustful of them, and rely on the company to police the sharing system so it’s equitable for everyone,” explains Harvard Business Review.
Airbnb is disrupting the hospitality industry around the world by enabling people to monetise their assets, or their homes in this case. The sharing economy has changed how the sharing economy has changed how clientele operate.
How has the free access-over-ownership disrupted industries?
The access-over-ownership business model is disrupting industries by providing temporary access to goods and services traditionally only available to consumers through purchase. This business model also includes sharing economy disruptors, which take a commissions from people monetising their assets by lending them to borrowers.
What makes the access-over-ownership model so successful?
Instead of purchasing expensive assets, customers can now gain access to them on a temporary basis, for only as long as they need it. The access-over-ownership model is so successful because “it has disrupted mature industries, such as hotels and automotives, by providing consumers with convenient and cost efficient access to resources without the financial, emotional, or social burdens of ownership. But the sharing economy isn’t really a “sharing” economy at all; it’s an access economy,” says HBR.
Business Model 10: Experience model
The experience business model, involves companies that focus on the experience and engagement they offer their customers.
Apple is a great example, offering their customers an interconnected experience that they are willing to pay more for. Experience and how their customers interact and engage with every aspect of their business is a core element of Apple, which is why it has such a strong brand and aesthetic.
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How has the free experience disrupted industries?
Businesses with the experience business model, disrupt industries by providing a superior experience, for which people are prepared to pay. Apple for example, have created innovative retail stores, which offer seating and engagement with their customers.
Amazon, could arguably also fall under this category as it strives for innovative new ways to engage with its customers, such as its current Amazon Go stores.
What makes the experience model so successful?
Customer engagement and experience is starting to become a differentiator within business. There are only so many ways a company can retain the competitive advantage. On the other hand, if they create a never before seen customer experience, people will come back again and again, which puts this business model ahead of the curve.
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